Estate Planning and Inheritance Tax (IHT)

Estate Planning and Probate

An individuals’ estate includes everything they own or in which they own a share in – for example – jointly held property. Therefore, thinking about Estate Planning and Inheritance Tax (IHT) well in advance ensures that assets can pass to your chosen beneficiaries in a tax efficient manner.

The first step is to make sure you have a valid and up to date Will in place. Ask us for our Will questionnaire if you need assistance in this area.

The next stage is to consider your Personal Asset Summary – you may be surprised at how this adds up! This will help you to see if you need estate planning and inheritance tax planning.

Use the simple table below to give you an idea of your Net Worth:

Assets Liabilities
Your home Mortgages
Other Property Mortgages
Bank & Building Society acs Other liabilities
Stocks and shares
Other investments
Motor vehicles
Household goods
Other personal possessions
Total (A) Total (B)
Net Worth (A – B)

Inheritance Tax (IHT)
Your Net Worth figure will give you an idea of whether IHT will be payable on your estate when you die.

Each individual is entitled to an IHT Nil Rate Band of £325,000. IHT is payable on any excess above the Nil Rate Band @ 40%. A Husband and Wife (but not unmarried couples) and Civil Partners are able to transfer any unused nil rate band to each other, which can increase the exemption on the second death to £650,000.

Since 6 April 2017, there is an additional nil rate band available when a main residence is passed on death to direct descendants. For 2017-18 this is £100,000, increasing to £175,000 from April 2020. Again this is transferable between a Husband and Wife or Civil Partners. This additional exemption does not apply, however, if the total estate value is in excess of £2million.

Effective estate planning
Early planning can help to mitigate any IHT due. We consider below a number of planning points that could be considered.

  • Gifts – gifts are treated as Potentially Exempt Transfers (PETs) and fall outside of your estate after seven years from the date of the gift. The gift has to be made outright and the donor cannot retain any benefit from the asset gifted. So, for example, you cannot give away your house and continue to live in it unless full market rent is paid. Care also needs to be taken if the asset you are gifting could give rise to a capital gain – please liaise with us for further advice on this point before doing anything.
  • Trusts – these can be used to remove assets from your estate whilst providing some asset protection as the beneficiaries do not actually own the assets – ownership vests with the trustees – so they are protected from things like bankruptcy and divorce.
  • Life policies – sometimes it can be a simple to provide a sum assured to pay out on death to cover the IHT liability – either in full or a substantial part of it
  • IHT efficient investments – these take advantage of IHT Business Relief
  • Discounted Gift Plans – these can remove an amount immediately from the estate with a further reduction in seven years

We can advise further on all aspects of the above points.

IHT is raising ever increasing revenues for the Exchequer. The liability can be significant and in some cases HMRC can become the largest beneficiary of an estate. With some advanced planning, steps can be taken to mitigate the liability. Talk to us if you want to discuss your own situation and possible ways of reducing this burden, allowing you to leave more to your chosen beneficiaries.

For advice on estate planning and inheritance tax contact